| Delaware(State      or other jurisdiction of incorporation or organization) | 94-2790442(I.R.S.      Employer Identification No.) |
|-----------------------------------------------------------------------------|-----------------------------------------------------|

| 275 Shoreline Drive, Suite 500 Redwood Shores,      California(Address      of principal executive offices) |   | 94065(Zip      Code) |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------|

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|                                                                                                                           | Page     |
|--------------------------------------------------------------------------------------------------------------------------------|----------|
| PART      I                                                                                                                    | 3        |
| Item      1. Business                                                                                                          | 3        |
| Item      1A. Risk Factors                                                                                                     | 8        |
| Item      1B.  Unresolved Staff Comments                                                                             | 9        |
| Item      2. Properties                                                                                                        | 9        |
| Item      3. Legal Proceedings                                                                                                 | 9        |
| Item      4. Submission of Matters to a Vote of Security Holders                                                               | 9        |
| PART      II                                                                                                                   | 9        |
| Item      5. Market For Registrant's Common Equity, Related Stockholder Matters and      Issuer Purchases of Equity Securities | 9        |
| Item      6. Selected Financial Data                                                                                           | 10       |
| Item      7. Management's Discussion and Analysis of FinancialConditionand      Results of Operations                          |  10 |
| Item      7A. Quantitative and Qualitative Disclosures About Market    Risk                                                    | 20       |
| Item      8. Consolidated Financial Statements and SupplementaryData                                                           | 20       |
| Item      9. Changes in and Disagreements with Accountants onAccountingand      Financial Disclosure                           |  21 |
| Item      9A. Controls and Procedures                                                                                          | 21       |
| Item      9B.  Other Information                                                                                     | 22       |
| PART      III                                                                                                                  | 22       |
| Item      10. Directors and Executive Officers and Corporate    Governance                                                     | 22       |
| Item      11. Executive Compensation                                                                                           | 25       |
| Item      12. Security Ownership of Certain Beneficial Owners and Management and      Related Stockholder Matters              | 27       |
| Item      13. Certain Relationships and Related Transactions and Director      Independence                                    | 30       |
| Item      14. Principal Accountant Fees and Services                                                                           | 32       |
| PART      IV                                                                                                                   | 33       |
| Item      15. Exhibits                                                                                                         | 33       |

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|   | SignatureOne      Profile Server | SignatureOne      Profile Server is the server compliment to CIC's Sign-it software, which      enables the real-time capture of electronic and digital signatures in      various application environments. All user enrollment, authentication and      transaction tracking in SignatureOne are based on data from the Sign-it      client software. |   |
|--------|----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

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|   | SignatureOne      Ceremony Server | The      SignatureOne Ceremony Server is a J2EEâ      server product that provides the capability to define and manage an      electronic signature process within a Service Oriented Architecture to be      implemented in an On-Premise Deployed Model or through a Software as a      Service (SaaS) environment. This product enables the use of web services      to facilitate end to end management of multi-party approvals of      documents. |   |
|--------|-----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | iSign                             | A      suite of application development tools for electronic digitized      signatures, biometric signature verification and cryptography for custom      developed applications and web based development.                                                                                                                                                                                                                                                  |   |
|   | Sign-it                           | Multi-modal      electronic signature software for common applications including; Microsoft      Word, Adobe Acrobat, AutoDesk AutoCAD, web based applications using HTML,      XML, & XHTML, and custom applications for .NET, C# and similar      development environments for the enterprise market                                                                                                                                                   |   |
|   | Jot                               | Multi-lingual      handwriting recognition software                                                                                                                                                                                                                                                                                                                                                                                                          |   |

| SignatureOne®      Ceremony® Server v1.0            |
|---------------------------------------------------------------|
| SignatureOne®      Sign-it® v6.3 for Acrobat®  |
| SignatureOne®      Sign-it® v6.31 for Acrobat® |
| SignatureOne®      Sign-it® v7.0 for Acrobat®  |
| SignatureOne®      Sign-it® v7.01 for Acrobat® |
| SignatureOne®      Sign-it® v7.02 for Acrobat® |
| Sign-it®      Viewer v2.0 for Acrobat®              |
| SignatureOne®      Sign-it® v7.0 for Word           |
| SignatureOne®      Profile Server v3.0                   |
| SignatureOne®      Ceremony® Server v1.1            |
| SignatureOne®      Ceremony® Server v1.11           |
| SignatureOne®      Ceremony® Server v1.2            |
| iSign®      v4.311                                       |
| SignatureOne®       Sign-it® XF v1.3.0.1       |
| SignatureOne®       Sign-it® XF v1.3.0.2       |
| Sign-it      Tools v7.0 for Word                              |

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|   | Patent      No. | Expiration |   |
|--------|-----------------|------------|--------|
|   | 5544255         | 2013       |   |
|   | 5647017         | 2014       |   |
|   | 5818955         | 2015       |   |
|   | 5933514         | 2016       |   |
|   | 6064751         | 2017       |   |
|   | 6091835         | 2017       |   |
|   | 6212295         | 2018       |   |
|   | 6381344         | 2019       |   |
|   | 6487310         | 2019       |   |

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----

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| Item      5. | Market for Registrant's Common      Equity, Related Stockholder Matters and Issuer Purchases of Equity      Securities |
|--------------|------------------------------------------------------------------------------------------------------------------------|

|   | Market      Information |
|--------|-------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Sale      PricePer Share |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|
| Year   | Period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | High                     |   |   | Low |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                     |   |   |   |   |
| 2007   | First      Quarter                                                                                                |   | $                        | 0.32   |   |   | $ | 0.20 |   |
|   | Second      Quarter                                                                                               |   | $                        | 0.27   |   |   | $ | 0.13 |   |
|   | Third      Quarter                                                                                                |   | $                        | 0.28   |   |   | $ | 0.15 |   |
|   | Fourth      Quarter                                                                                               |   | $                        | 0.42   |   |   | $ | 0.20 |   |
| 2008   | First    Quarter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                        | 0.27   |   |   | $ | 0.13 |   |
|   | Second      Quarter                                                                                               |   | $                        | 0.27   |   |   | $ | 0.13 |   |
|   | Third      Quarter                                                                                                |   | $                        | 0.23   |   |   | $ | 0.10 |   |
|   | Fourth      Quarter                                                                                               |   | $                        | 0.16   |   |   | $ | 0.05 |   |

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----

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| ·   | whether      there are legal, regulatory or contractual provisions known to the Company      that limit the useful life of any patent to less than the assigned useful      life; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether      the Company needs to incur material costs or make modifications in order      for it to continue to be able to realize the protection afforded by the      patents; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether      any effects of obsolescence or significant competitive pressure on the      Company’s current or future products are expected to reduce the      anticipated cash flow from the products covered by the      patents; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | whether      demand for products utilizing the patented technology will diminish,      remain stable or increase; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | whether      the current markets for the products based on the patented technology will      remain constant or will change over the useful lives assigned to the      patents. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                    |   | Payments      due by period |   |
|-----------------------------------------|--------|-----------------------------|--------|
| Contractual      obligations            |   | Total                       |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
| Short-term      debt related party (1)  |   | $                           | 65     |   |   | $ | 65 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Long-term      debt related party (2)   |   |                        | 3,638  |   |   |   | – |   |   |   | 3,638 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Operating      lease commitments (3)    |   |                        | 792    |   |   |   | 272 |   |   |   | 280 |   |   |   | 240 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Total      contractual cash obligations |   | $                           | 4,495  |   |   | $ | 337 |   |   | $ | 3,918 |   |   | $ | 240 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

| 1.   | Short-term      debt reported on the balance sheet is net of approximately $5 in discounts      representing the fair value of warrants issued in connection with the      Company’s debt financings. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Long-term      debt related party reported on the balance sheet is net of approximately      $873 in discounts representing the fair value of warrants issued to the      debt holders. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | The      operating lease commenced on November 1, 2002. The lease was renegotiated      in December 2005 and extended for an additional 60 months. The base rent      will increase approximately 3% per annum over the term of the lease, which      expires on October 31, 2011. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item 7A. Quantitative and QualitativeDisclosures About Market Risk

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----

| Name                                         | Age    | Year      First Electedor Appointed |
|----------------------------------------------|--------|-------------------------------------|
|                                         |   |                                |
| Guido      D. DiGregorio (5)                 | 70     | 1997                                |
| Garry      Meyer (5)                         | 59     | 2007                                |
| Louis      P. Panetta (1), (2), (3), (4) (5) | 59     | 2000                                |
| Chien-Bor      Sung (1), (2), (3), (4)       | 84     | 1986                                |
| David      E. Welch (1), (4), (3)            | 62     | 2004                                |

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|   |  Name               |  Age |  Positions Currently Held                                             |   |
|--------|--------------------------|-----------|----------------------------------------------------------------------------|--------|
|   |                     |      |                                                                       |   |
|   | Guido      D. DiGregorio | 70        | Chairman      of the Board,Chief      Executive Officer and President      |   |
|   | Francis      V. Dane     | 57        | Chief      Legal Officer,Secretary      and Chief Financial Officer        |   |
|   | Russel      L. Davis     | 44        | Chief      Technology Officer & Vice President, Product    Development |   |

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|       Name      andPrincipalPosition |         Year                                         |        Salary($)                                          |        Bonus($)                                                                                     |       StockAwards($)                                                                         |       OptionAwards($)      (3)                                                                                      |      Non-EquityIncentive      PlanCompensation($)             |   Change      inPension      ValueAndNonqualifiedDeferred      CompensationEarnings($)                                                                                                                                                          |       All      OtherCompensation($)                                                                                                                                                                      |        Total($)                                                 |
|--------------------------------------------------------------------|----------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|  Guido      DiGregorioPresident      & CEO                |             2008           2007  |            285,000(1)          200,000(1)  |                −              −  |               −             −  |                  40,200              −  |            −          −  |     −   −                                                                                                                                                                                                       |                   10,055                  9,486                                                           |             335,255           209,486  |
|  Frank      DaneCLO      & CFO                            |             2008           2007  |            160,000          160,000        |               −             −              |               −             −  |                 20,100              1,875          |            −          −  |     −                        −                                                                                                       |                        −                      −  |             180,100           161,875  |
|  Russel      DavisCTO                                         |             2008           2007  |            165,000          165,000        |            25,000(2)             −                              |               −             −  |                 30,150             −              |            −          −  |                          −                        −  |                        −                      −  |             220,150           165,000  |

| 1.   | Mr.      DiGregorio 2008 salary includes $85,000, paid in March 2008 that he      voluntarily deferred from his 2007 salary.  Mr. DiGregorio has      deferred receipt of his 2008 deferred salary, payable in March 2009,      intending to receive such payment when the company achieves quarterly cash      flow positive operations. In addition, $85,000 of his 2009 salary is being      voluntary deferred to March of2010. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Bonus      payment for leading the design and development effort and delivery ahead      of scheduled of the SignatureOne Ceremony Server product which was the      basis for closing 2 orders with top-tier insurance companies which      contributed over $1,000,000 to last half of 2008  revenue. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | On      January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based      Payment” Share-based compensation expense is based on the estimated grant      date fair value of the portion of share-based payment awards that are      ultimately expected to vest during the period.  The grant date      fair value of stock-based awards to officers, employees and directors is      calculated using the Black-Scholes option pricing model. Mr. DiGregorio      has 2,181,818 options that are vested and exercisable within sixty days of      December 31, 2008.  Mr. Dane has 559,852 options that are vested      and exercisable within sixty days of December 31, 2008. Mr. Davis has      673,863 options that are vested and exercisable within sixty days of      December 31, 2007. In accordance with applicable regulations, the value of      such options does not reflect an estimate for features related to      service-based vesting used by the Company for financial statement      purposes. See footnote 6 in the Notes to Consolidated Financial Statements      included with this report on Form10-K. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |     Name      andPrincipalPosition    | Number      ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable                                                                                                                                                                                                                                                                                                                                                     | Number      ofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable                                                                                                                                                                                                                                                                                                                                                                                                                                                           |     OptionExercisePrice      ($) (4)                                                                                                                             |     OptionExpirationDate      (5)                                                                                                                                                       |
|--------|-----------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  Guido      DiGregorio, President      & CEO (1) |          190,909        250,000        425,000                  1,275,000                                                                                                                                                     |        409,091                  −                  −                  −                                                                                                                                                                                                               |      $0.15    $0.79    $0.39    $0.75                                                           |                  2015          2009          2012          2012 |
|   |  Frank      Dane, CLO & CFO      (2)             |                         95,454        100,000        100,000        100,000               35,985        107,958 |         204,546                   −                   −                   −                   −                   − |      $0.15    $0.79    $0.33    $0.55    $0.39    $0.75 |  201520092010201120122012                                                                                                                                                                              |
|   |  Russel      Davis, CTO      (3)                     |          143,181        125,000        375,000                                                                                                                                                                                                                                            |         306,819                   −                   −                                                                                                                                                                                                                                                                                  |      $0.15    $0.57    $0.75                                                                                        |  201520122012                                                                                                                                                                                          |

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|        Name |     Fees      EarnedOr      Paid inCash($) |      StockAwards($)             |      OptionAwards($) |    Non-EquityIncentivePlanCompensation($) |    Change      in PensionValue      andNonqualified      DeferredCompensationEarnings($) |      All      OtherCompensation($)    |      Total($) |
|------------------------------------------------|----------------------------------------------------------------|----------------------------------------------------------|-----------------------------------------------|----------------------------------------------------------|---------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|----------------------------------------|
|  Garry      Meyer (1)                     |  $     2,000                     |  $       − |  $     3,995    |  $       − |  $       −                                                |  $        − |  $5,995                           |
|  Louis      P. Panetta (2)                |  $     2,000                     |  $       − |  $     3,995    |  $       − |  $        −                                          |  $        − |  $5,995                           |
|  C.      B. Sung (3)                      |  $     2,000                     |  $       − |  $     3,995    |  $       − |  $        −                                          |  $        − |  $5,995                           |
|  David      E. Welch (4)                  |  $     2,000                     |  $       − |  $     3,995    |  $       − |  $        −                                          |  $        − |  $5,995                           |

|   | 1.   Mr.      Meyer holds options to acquire 75,000 shares of stock at December 31,      2008, all of which were vested. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.   Mr.      Panetta holds options to acquire 225,000 shares of stock at December 31,      2008, all of which were vested. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.   Mr.      Sung holds options to acquire 210,000 shares of stock at December 31,      2008, all of which were vested. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.   Mr.      Welch holds options to acquire 175,000 shares of stock at December 31,      2008, all of which were vested. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Common      Stock                                                                              |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|
|   | Name of Beneficial Owner                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Numberof Shares**                                                                              | Percentof Class** |
|   | Guido      DiGregorio (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         2,325,718                                      |         1.78% |
|   | C.      B. Sung (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |         1,844,420                                      |         1.41% |
|   | Louis      P. Panetta      (3)                                                                            |                 225,000                      |                       * |
|   | David      E. Welch, (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                 175,000                      |                       * |
|   | Garry      Meyer (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   75,000           |                       * |
|   | Francis      V. Dane (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                 560,064                      |                       * |
|   | Russel      L. Davis (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                 673,863                      |                       * |
|   | All      directors and executive officers as a group (6 persons)                                                                                                                                                                                                                                                                                                                                                                                                                                 |         5,879,065                                      |         4.50% |
|   | 5%      Shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                           |   |
|   | Phoenix      Venture Fund LLC (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                    41,714,286 |         31.96% |
|   | Michael      W. Engmann (9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                    14,611,241 |         11.19% |

| (1)   | Represents      (a) 143,900 shares held by Mr. DiGregorio and (b) 2,181,818 shares      issuable upon the exercise of stock options exercisable within 60 days      hereof. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes      (a) 1,631,051 shares held by the Sung Family Trust, of which Mr. Sung      is a trustee, (b) 3,369 shares held by the Sung-Kwok Foundation, of which      Mr. Sung is the Chairman, and (c) 210,000 shares of Common Stock issuable      upon the exercise of stock options, exercisable within 60 days      hereof.  Mr. Sung may be deemed to beneficially own the shares      held by the Sung Family Trust and the Sung-Kwok  Foundation. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Represents      225,000 shares issuable upon the exercise of options exercisable within 60      days hereof. |
|-----------------|--------------------------------------------------------------------------------------------------------------|

| (4)   | Represents      175,000 shares issuable upon the exercise of stock options exercisable      within 60 days hereof. |
|-----------------|--------------------------------------------------------------------------------------------------------------------|

| (5)   | Represents      75,000 shares issuable upon the exercise of stock options exercisable      within 60 days hereof. |
|-----------------|-------------------------------------------------------------------------------------------------------------------|

| (6)   | Represents      (a) 212 shares held by Mr. Dane and (b) 559,852 shares issuable upon the      exercise of stock options exercisable within 60 days    hereof. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Represents      673,863 shares issuable upon the exercise of stock options within 60 days      hereof. |
|-----------------|--------------------------------------------------------------------------------------------------------|

| (8)   | Represents      (a) 21,500,000 shares held by SG Phoenix Ventures LLC and (b) 20,214,286      shares issuable upon the exercise of warrants. SG Phoenix Ventures LLC is      the Managing Member of Phoenix Venture Fund LLC (the “Phoenix Fund”), with      the power to vote and dispose of the shares of Common Stock held by the      Phoenix Fund. Accordingly, SG Phoenix Ventures LLC may be deemed to be the      beneficial owner of such shares. Andrea Goren is the co-manager of SG      Phoenix Ventures LLC, has the shared power to vote and dispose of the      shares of Common Stock held by the Phoenix Fund and, as such, may be      deemed to be the beneficial owner of the common shares owned by the      Phoenix Fund. Philip Sassower is the co-manager of SG Phoenix      Ventures |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (9)   | Represents      (a) 10,575,527 warrants beneficially owned by Mr. Engmann, of which      1,187,962 are held by MDNH Partners, L.P. and 1,659,200 are held by KENDU      Partners Company of which Mr. Engmann is a partner and (b) 4,750,000      shares issuable upon the conversion of shares of Series A-1 Preferred      beneficially owned by Mr. Engmann, of which 1,138,393 are issuable to MDNH      Partners, L.P. and 2,248,571 are issuable to KENDU Partners Company of      which Mr. Engmann is a partner. Mr. Engmann was issued warrants to      purchase 2,333,250 shares of the Company’s Common Stock at $0.51 per      share, warrants to purchase 1,979,936 shares of the Company’s Common Stock      at $0.25 per share and  warrants to purchase 3,415,179 shares of      the Company’s Common Stock at $0.14 per share. MDNH Partners, L.P. was      issued warrants to purchase 1,659,200 shares of the Company’s Common Stock      at $0.51 per share, and MDNH Partners, L.P. was issued warrants to      purchase 1,187,962 shares of the Company’s Common Stock at $0.25 per      share. Such warrants were issued in connection with notes issued in 2006      and 2007. In addition, Mr. Engmann, MDNH Partners, L.P. and KENDU Partners      Company converted a portion of outstanding indebtedness and interest      accrued thereon into shares of Series A-1 Preferred in connection with the      Company’s June 2008 financing transaction.  Each share of Series      A-1 Preferred held by Mr. Engmann, MDNH Partners, L.P. and KENDU Partners      Company is presently convertible into 7.1429 shares of Common Stock. Mr.      Engmann has 65,250 shares of Series A-1 Preferred that can be converted      into 466,071 shares of Common Stock. MDNH Partners, L.P. refinanced their      existing debt and unpaid interest into 159,375 shares of Series A-1      Preferred that are convertible into 1,138,393 common shares at $0.14 per      share. KENDU Partners, Company refinanced their existing debt and unpaid      interest into 340,000 shares of Series A-1 Preferred that are convertible      into 2,428,571 common shares at $0.14 per share  Mr. Engmann’s      address is 220 Bush Street, No. 660, San Francisco, CA 94104. (See note 5      to the Consolidated FinancialStatements) |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                  | Number      of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants      and Rights                         | Weighted-Average      Exercise Price Of Outstanding Options, Warrants and Rights | Number      of Securities Remaining Available For Future Issuance Under Equity      Compensation Plans |
|-----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| Equity      Compensation Plans Approved by Security Holders           |                                                                                                                          |                                                                             |                                                                                                   |
|  1999      Stock Option Plan                                     |                          3,543 | $        0.54                            |   72                                                                                         |
|  Equity      Compensation Plans Not Approved by Security Holders |                          4,065 |  $        0.42                      |   −                                                                                    |
|                                                                  |                                                                                                                          |                                                                             |                                                                                                   |
| Total:                                                                |                     7,608                               | $        0.48                            |                 72                                   |
|                                                                  |                                                                                                                          |                                                                             |                                                                                                   |

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|   |                                                                                                                     | Page      |
|--------|--------------------------------------------------------------------------------------------------------------------------|-----------|
| (a)(1) | Financial      Statements                                                                                                |      |
|   | Report      of GHP Horwath, P.C., Independent Registered Public Accounting      Firm                                     | F-1       |
|   | Consolidated      Balance Sheets at December 31, 2008 and 2007                                                      | F-2       |
|   | Consolidated      Statements of Operations for the years ended December 31, 2008 and      2007                      | F-3       |
|   | Consolidated      Statements of Changes in Stockholders' Equity for the years ended      December 31, 2008 and 2007 |  F-4 |
|   | Consolidated      Statements of Cash Flows for the years ended December 31, 2008 and      2007                      | F-5       |
|   | Notes      to Consolidated Financial Statements                                                                          | F-7       |

| ExhibitNumber |  Document                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1           | Certificate      of Incorporation of the Company, as amended, incorporated herein by      reference to Exhibits 3.1, 3.2, 3.3 and 3.4 to the Company's Registration      Statement on Form 10 (File No. 000-19301).                                                                                                                                                                                                                        |
| 3.2           | Certificate      of Amendment to the Company's Certificate of Incorporation (authorizing      the reclassification of the Class A Common Stock and Class B      Common Stock into one class of Common Stock) filed with the Delaware      Secretary of State on November 1, 1991, incorporated herein by      reference to Exhibit 3 to Amendment 1 on Form 8 to the      Company's Form 8-A (File No.000-19301). |

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| ExhibitNumber |  Document                                                                                                                                                                                                                                                                                                                          |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.3     |  Certificate      of Amendment to the Company’s Amended and Restated Certificate of      Incorporation filed with the Delaware Secretary of State June 12, 1998,      incorporated herein by reference to Exhibit 10.24 to the Company’s 1998      Form 10-K filed on April 6, 1999.                                   |
| 3.4           | By-laws      of the Company adopted on October 6, 1986, incorporated herein by      reference to Exhibit 3.5 to the Company's Registration Statement on      Form 10 (File No. 000-19301).                                                                                                                               |
| 3.5           | Certificate      of Amendment to the Company’s Amended and Restated Certificate of      Incorporation filed with the Delaware Secretary of State January 24, 2001,      incorporated herein by reference to Exhibit 3.5 to the Company’s      Registration Statement on Form S/1 filed on December 28,    2007.             |
| 3.6           | Certificate      of Elimination of the Company’s Certificate of Designation of the Series A      Preferred Stock filed with the Delaware Secretary of State August 17,      2001, incorporated herein by reference to Exhibit 3.6 to the Company’s      Registration Statement on Form S/1 filed on December 28,    2007.   |
| 3.7           | Certificate      of Amendment to the Company’s Amended and Restated Certificate of      Incorporation filed with the Delaware Secretary of State August 17, 2007,      incorporated herein by reference to Exhibit 3.7 to the Company’s      Registration Statement on Form S/1 filed on December 28,    2007.              |
| 3.8           | Amended      and Restated Certificate of Incorporation of the Company filed with the      Delaware Secretary of State on May 18, 1995, incorporated herein by      reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q      filed on August 14, 2008.                                                         |
| 3.9           | Certificate      of Designations, Powers, Preferences and Rights of the Series A Cumulative      Convertible Preferred Stock filed with the Delaware Secretary of State on      June 4, 2008, incorporated herein by reference to Exhibit 4.23 to the      Company’s Quarterly Report on Form 10-Q filed on August 14,      2008. |
| 3.10          | Certificate      of Amendment to the Company’s Amended and Restated Certificate of      Incorporation filed with the Delaware Secretary of State on June 30, 2008,      incorporated herein by reference to Exhibit 3.7 to the Company’s Quarterly      Report on Form 10-Q filed on August 14, 2008.                       |
| *3.11         | Certificate      of Designations, Powers, Preferences and Rights of the Series A-1      Cumulative Convertible Preferred Stock filed with the Delaware Secretary      of State on October 30, 2008.                                                                                                                                     |
| *3.12         | Certificate      of Elimination of the Company’s Series A Cumulative Convertible Preferred      Stock filed with the Delaware Secretary of State on December 30,      2008.                                                                                                                                                       |
| †4.10   | 1999      Stock Option Plan, as amended, incorporated herein by reference to Exhibit      4.2 to the Company's Form S-8 filed on September 19,  2008.                                                                                                                                                                                   |
| 4.11          | Form      of Convertible Promissory Note issued by the Company, incorporated herein      by reference to Exhibit 10.3 to the Company's Form 8-K filed on      November 3, 2004.                                                                                                                                                    |
| 4.12          | Form      of Warrant issued by the Company, incorporated herein by reference to      Exhibit 10.4 to the Company's Form 8-K filed on November 3,      2004.                                                                                                                                                                        |
| 4.13          | Form      of Promissory Note issued by the Company, incorporated herein by reference      to Exhibit 10.36 to the Company's Form 8-K filed on August 12,      2006.                                                                                                                                                                     |
| 4.14          | Form      of Warrant issued by the Company, incorporated herein by reference to      Exhibit 10.37 to the Company's Form 8-K filed on August 12,      2006.                                                                                                                                                                             |
| 4.15          | Form      of Promissory Note issued by the Company, incorporated herein by reference      to Exhibit 10.36 to the Company’s Form 8-K filed on February 9,      2007.                                                                                                                                                              |
| 4.16          | Form      of Warrant issued by the Company, incorporated herein by reference to      Exhibit 10.37 to the Company’s Form 8-K filed on February 9,      2007.                                                                                                                                                                      |
| 4.17          | Form      of Promissory Note issued by the Company, incorporated herein by reference      to Exhibit 10.36 to the Company’s Form 8-K filed on June 20,      2007.                                                                                                                                                                 |
| 4.18          | Form      of Warrant issued the Company, incorporated herein by reference to Exhibit      10.37 to the Company’s Form 8-K filed on June 20, 2007.                                                                                                                                                                                 |
| 4.19          | Form      of Common Stock Purchase Warrant issued by the Company, incorporated      herein by reference to Exhibit 4.19 to the Company’s Quarterly Report on      Form 10-Q filed on August 14, 2008.                                                                                                                             |

----

| ExhibitNumber                    |  Document                                                                                                                                                                                                                                                           |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  4.20                       |  Form      of Additional Common Stock Purchase Warrant, incorporated herein by      reference to Exhibit 4.20 to the Company’s Quarterly Report on Form 10-Q      filed on August 14, 2008.                                                                   |
| 4.21                             | Form      of Secured Promissory Note issued by the Company dated June 5, 2008,      incorporated herein by reference to Exhibit 4.21 to the Company’s      Quarterly Report on Form 10-Q filed on August 14, 2008.                                                 |
| 4.22                             | Form      of Additional Secured Promissory Note, incorporated herein by reference to      Exhibit 4.22 to the Company’s Quarterly Report on Form 10-Q filed on      August 14, 2008.                                                                               |
| *4.23                            | Certificate      of Designations, Powers, Preferences and Rights of the Series A-1      Cumulative Convertible Preferred Stock filed with the Delaware Secretary      of State on October 30, 2008.                                                                      |
| ††10.19              | Software      Development and License Agreement dated December 4, 1998 between Ericsson      Mobile Communications AB and the Company incorporated herein by reference      to Exhibit 10.26 of the Company's 1998 Form 10-K (File      No. 0-19301).     |
| 10.24                            | Form      of Note and Warrant Purchase Agreement dated October 28, 2004, by and      among the Company and the Purchasers identified therein, incorporated      herein by reference to Exhibit 10.1 to the Company's Form 8-K filed on      November 3, 2004.       |
| 10.25                            | Form      of Registration Rights Agreement dated October 28, 2004, by and among the      Company and the parties identified therein, incorporated herein by      reference to Exhibit 10.2 to the Company's Form 8-K filed on      November 3, 2004.                |
| 10.26                            | Form      of Note and Warrant Purchase Agreement dated August 10, 2006, by and among      the Company and the Purchasers identified therein, incorporated herein by      reference to Exhibit 10.34 to the Company's Form 8-K filed on August 12,      2006.             |
| 10.27                            | Form      of Registration Rights Agreement dated August 10, 2006, by and among the      Company and the parties identified therein, incorporated herein by      reference to Exhibit 10.35 to the Company's Form 8-K filed on August 12,      2006.                      |
| †††10.28       | Amendment      dated May 31, 2005 to the License agreement dated December 22, 2000      between the Company and eCom Asia Pacific, Ltd., incorporated by reference      to Exhibit 10.26 of the Company’s Form 10-K/A  filed on      September 15, 2005. |
| †††      10.29 | License      agreement dated June 2, 2005 between the Company and SnapOn Credit LLC,      incorporated herein by reference to Exhibit 10.27 of the Company’s Form      10-K/A filed on September 15, 2005.                                                         |
| †10.30                     | Amendment      to employment agreement with Guido DiGregorio, incorporated herein by      reference to the Company's Form 8-K filed on September 21,      2005.                                                                                                          |
| †10.31                     | Amendment      to employment agreement with Francis V. Dane, incorporated herein by      reference to the Company's Form 8-K filed on September 21,      2005.                                                                                                           |
| †10.32                     | Form      of stock option agreement dated August 31, 2005 with Russel L. Davis,      incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A      filed on September 15, 2006.                                                                     |
| †10.33                     | Form      of stock option agreement dated December 19, 2005 with Guido DiGregorio,      incorporated by reference to Exhibit 10.30 of the Company’s Form      10-K/A  filed on September 15, 2006.                                                       |
| †10.34                     | Form      of stock option agreement dated August 31, 2005 with Francis V. Dane,      incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A      filed on September 15, 2006.                                                                     |
| †10.35                     | Form      of stock option agreement dated August 31, 2005 with C. B. Sung,      incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K/A      filed on September 15, 2006.                                                                          |
| 10.36                            | Form      of Note and Warrant Purchase Agreement dated February 5, 2007, by and      among the Company and the Purchasers identified therein, incorporated      herein by reference to Exhibit 10.34 to the Company's Form 8-K filed on      February 5, 2007.           |
| 10.37                            | Form      of Registration Rights Agreement dated February 5, 2007, by and among the      Company and the parties identified therein, incorporated herein by      reference to Exhibit 10.35 to the Company's Form 8-K filed on February 5,      2007.                    |
| 10.38                            | Amendment      to the Note and Warrant Purchase Agreement dated February 5, 2007, by and      among the Company and the parties identified therein, incorporated herein      by reference to Exhibit 99.1 to the Company's Form 8-K filed on March 15,      2007.        |

----

| ExhibitNumber |  Document                                                                                                                                                                                                                                                                      |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  10.39   |  Form      of Note and Warrant Purchase Agreement dated June 15, 2007, by and among      the Company and the Purchasers identified therein, incorporated herein by      reference to Exhibit 10.34 to the Company's Form 8-K filed on June 15,      2007.                      |
| 10.40         | Form      of Registration Rights Agreement dated June 15, 2007, by and among the      Company and the parties identified therein, incorporated herein by      reference to Exhibit 10.35 to the Company's Form 8-K filed on June 15,      2007.                                     |
| 10.41         | Form      of Securities Purchase and Registration Rights Agreement dated August 24,      2007, by and among the Company and Phoenix Venture Fund LLC, incorporated      herein by reference to Exhibit 10.36 to the Company's Form 8-K filed on      August 27, 2007.               |
| †10.42  | Consulting      Agreement dated January 9, 2008 between the Company and GS Meyer &      Associates LLC - Incorporated by reference to Exhibit 10.42 to the      Company’s Annual Report on Form 10-K filed on March 12,    2007.                                          |
| 10.43         | Credit      Agreement dated June 5, 2008, by and among the Company and the Lenders      Party Hereto and SG Phoenix as Collateral Agent, incorporated herein by      reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q      filed on August 14, 2008. |
| 10.44         | Pledge      and Security Agreement dated June 5, 2008, by and among the Company and      the parties identified therein, incorporated herein by reference to      Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q filed on      August 14, 2008.                 |
| 10.44         | Securities      Purchase Agreement dated June 5, 2008, by and among the Company and the      parties identified therein, incorporated herein by reference to Exhibit      10.43 to the Company’s Quarterly Report on Form 10-Q filed on August 14,      2008.                 |
| 10.45         | Registration      Rights Agreement dated June 5, 2008, by and among the Company and the      parties identified therein, incorporated herein by reference to Exhibit      10.44 to the Company’s Quarterly Report on Form 10-Q filed on August 14,      2008.                 |
| 14.1          | Code      of Ethics, incorporated by reference to Exhibit 14 to the Company’s Annual      Report on Form 10-K filed on March 30, 2004.                                                                                                                                        |
| *21.1         | Schedule      of Subsidiaries.                                                                                                                                                                                                                                                      |
| *23.1         | Consent      of GHP Horwath, P.C., Independent Registered Public Accounting      Firm.                                                                                                                                                                                              |
| *31.1         | Certification      of Company’s Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                        |
| *31.2         | Certificate      of Company’s Chief Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002                                                                                                                                                          |
| *32.1         | Certification      of Chief Executive Officer pursuant to 18 USC Section 1750, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                           |
| *32.2         | Certification      of Chief Financial Officer pursuant to 18 USC Section 1750, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                           |

| * | Filed      herewith. |
|---|----------------------|

| † | Indicates      management contract or compensatory plan, contract or arrangement. |
|---------|-----------------------------------------------------------------------------------|

| †† | Confidential      treatment of certain portions of this exhibit have been requested from the      SEC pursuant to a request for confidentiality dated March 30, 1999, filed      pursuant to the Securities and Exchange Act of  1934. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ††† | Confidential      treatment of certain portions of this exhibit have been requested from the      SEC pursuant to a request for confidentiality dated March 30, 2006 filed      pursuant to the Securities and Exchange Act of  1934. |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b)      Exhibits |
|--------|-------------------|

|   | (c)      Financial StatementsSchedules |
|--------|----------------------------------------|

----

|   | Communication      Intelligence Corp. |
|--------|---------------------------------------|
|   | By:                                   |  /s/ Francis V. DaneFrancis      V. Dane(Principal      Financial Officer and Officer Duly Authorized to Sign on Behalf of the      Registrant) |

| Signature                                       | Title                                                                                                       |
|-------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                        |
|  /s/ Guido DiGregorioGuido      DiGregorio |  Chairman,      President and Chief Executive Officer(Principal      Executive Officer)                |
|  /s/ Francis V. DaneFrancis      V. Dane   |  Chief      Legal Officer and Chief Financial Officer(Principal      Financial and Accounting Officer) |
|  /s/ Garry MeyerGarry      Meyer           |  Director                                                                                              |
|  /s/ Louis P. PanettaLouis      P. Panetta |  Director                                                                                              |
|  /s/ Chien-Bor SungChien-Bor      Sung     |  Director                                                                                              |
|  /s/ David WelchDavid      Welch           |  Director                                                                                              |

----

----

|                                                                                                                                                                               |   | December      31, |         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------------|
|                                                                                                                                                                               |   | 2008              |         |   | 2007 |   |
| Assets                                                                                                                                                                             |   |              |         |   |   |   |
| Current      assets:                                                                                                                                                               |   |              |         |   |   |   |
| Cash and cash      equivalents                                                                                                                                                     |   | $                 | 929          |   |   | $ | 1,144 |   |
| Accounts receivable, net of      allowances of $104 and $117 at December 31, 2008 and 2007,      respectively                                                                      |   |              | 700          |   |   |   | 452 |   |
| Prepaid expenses and other      current assets                                                                                                                                     |   |              | 80           |   |   |   | 135 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Total current      assets                                                                                                                                                          |   |              | 1,709        |   |   |   | 1,731 |   |
| Property      and equipment, net                                                                                                                                                   |   |              | 48           |   |   |   | 77 |   |
| Patents                                                                                                                                                                            |   |              | 3,149        |   |   |   | 3,528 |   |
| Capitalized      software development costs                                                                                                                                        |   |              | 1,406        |   |   |   | 1,109 |   |
| Deferred      financing costs (Note 3)                                                                                                                                             |   |              | 301          |   |   |   | − |   |
| Other      assets                                                                                                                                                                  |   |              | 30           |   |   |   | 30 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Total assets                                                                                                                                                                       |   | $                 | 6,643        |   |   | $ | 6,475 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Liabilities      and Stockholders' Equity                                                                                                                                          |   |              |         |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                          |   |              |         |   |   |   |   |   |
| Short-term debt –net of discount      of $5 at December 31, 2008 and $350 at December 31, 2007                                                                               |   | $                 | 60           |   |   | $ | 1,370 |   |
| Accounts payable                                                                                                                                                                   |   |              | 92           |   |   |   | 135 |   |
| Accrued    compensation                                                                                                                                                            |   |              | 369          |   |   |   | 364 |   |
| Other accrued      liabilities                                                                                                                                                     |   |              | 236          |   |   |   | 298 |   |
| Deferred revenue                                                                                                                                                                   |   |              | 343          |   |   |   | 431 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Total current      liabilities                                                                                                                                                     |   |              | 1,100        |   |   |   | 2,598 |   |
| Long-term      debt –net of discount of $873, including related party debt of      $2,644, net of discount of $834 (Note 4)                                             |   |              |   2,765 |   |   |   |   − |   |
| Long-      term debt – other, net of discount of $21 at December 31, 2007 (Note      3)                                                                                 |   |              | –      |   |   |   | 96 |   |
| Commitments      and contingencies (Note 6)                                                                                                                                        |   |              |         |   |   |   |   |   |
|      Total      Liabilities                                                                                                                               |   |              | 3,865   |   |   |   | 2,694  |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Stockholders'      equity:                                                                                                                                                         |   |              |         |   |   |   |   |   |
| Preferred stock, $.01 par value;      10,000 shares authorized; 856 outstanding at December 31, 2008 and 0 at      December 31, 2007, respectively; $883 liquidation    preference |   |              |   856   |   |   |   |   – |   |
| Common Stock, $.01 par value;      225,000 shares authorized; 130,374 and 130,307 shares issued and      outstanding at December 31, 2008 and 2007, respectively                   |   |              |   1,304 |   |   |   |   1,291 |   |
| Additional paid-in      capital                                                                                                                                                    |   |              | 95,174       |   |   |   | 93,785 |   |
| Accumulated    deficit                                                                                                                                                             |   |              | (94,569      | ) |   |   | (91,260 | ) |
| Accumulated other comprehensive      income (loss)                                                                                                                                 |   |              | 13           |   |   |   | (35 | ) |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Total      stockholders' equity                                                                                                                                                    |   |              | 2,778        |   |   |   | 3,781 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                    |   | $                 | 6,643        |   |   | $ | 6,475 |   |
|                                                                                                                                                                               |   |              |         |   |   |   |   |   |

----

|                                                                           |   | Years      Ended December 31, |    |
|--------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                           |   | 2008                          |    |   | 2007 |   |
| Revenues:                                                                      |   |                          |    |   |   |   |
| Product                                                                        |   | $                             | 1,686   |   |   | $ | 1,448 |   |
| Maintenance                                                                    |   |                          | 715     |   |   |   | 697 |   |
|                                                                           |   |                          | 2,401   |   |   |   | 2,145 |   |
| Operating      costs and expenses:                                             |   |                          |    |   |   |   |   |   |
| Cost of sales:                                                                 |   |                          |    |   |   |   |   |   |
| Product                                                                        |   |                          | 895     |   |   |   | 367 |   |
| Maintenance                                                                    |   |                          | 169     |   |   |   | 158 |   |
| Research and      development                                                  |   |                          | 198     |   |   |   | 476 |   |
| Sales and      marketing                                                       |   |                          | 1,353   |   |   |   | 1,276 |   |
| General and      administrative                                                |   |                          | 2,030   |   |   |   | 2,061 |   |
|                                                                           |   |                          |    |   |   |   |   |   |
|                                                                           |   |                          | 4,645   |   |   |   | 4,338 |   |
|                                                                           |   |                          |    |   |   |   |   |   |
| Loss      from operations                                                      |   |                          | (2,244  | ) |   |   | (2,193 | ) |
|                                                                           |   |                          |    |   |   |   |   |   |
| Interest      income and other income (expense), net                           |   |                          | 72      |   |   |   | (26 | ) |
| Interest      expense:                                                         |   |                          |    |   |   |   |   |   |
| Related      party (Note 4)                                                    |   |                          | (243    | ) |   |   | (135 | ) |
| Other      (Note 3)                                                            |   |                          | (45     | ) |   |   | (149 | ) |
| Amortization      of debt discount and deferred financing cost:                |   |                          |    |   |   |   |   |   |
| Related      party (Note 4)                                                    |   |                          | (730    | ) |   |   | (305 | ) |
| Other      (Note 3)                                                            |   |                          | (119    | ) |   |   | (664 | ) |
| Minority      interest                                                         |   |                          | − |   |   |   | 73 |   |
| Net      loss                                                                  |   |                          | (3,309  | ) |   |   | (3,399 | ) |
| Accretion      of beneficial conversion feature, Preferred shares (Note    7): |   |                          |    |   |   |   |   |   |
| Related      party                                                             |   |                          | (273    | ) |   |   | − |   |
| Other                                                                          |   |                          | (98     | ) |   |   | − |   |
| Preferred      stock dividends:                                                |   |                          |    |   |   |   |   |   |
| Related      party                                                             |   |                          | (34     | ) |   |   | − |   |
| Other                                                                          |   |                          | (13     | ) |   |   | − |   |
|                                                                           |   |                          |    |   |   |   |   |   |
| Net      loss attributable to common stockholders                              |   | $                             | (3,727  | ) |   | $ | (3,399 | ) |
|  Basic      and diluted loss per common share                             |   | $                             | (0.03   | ) |   | $ | (0.03 | ) |
|  Weighted      average common shares outstanding, basic and diluted       |   |                          | 129,247 |   |   |   | 113,960 |   |
|                                                                           |   |                          |    |   |   |   |   |   |

----

|                                                                                                                   |   | PreferredSharesOutstanding |         |   | PreferredShares |   |         | CommonSharesOutstanding |   |   |  CommonStock |   |   | AdditionalPaid-InCapital |       |   |  AccumulatedDeficit |   |              | AccumulatedOtherComprehensiveIncome (Loss) |   |   |   Total |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------------|--------|-----------------|--------|--------------|-------------------------|--------|--------|-------------------|--------|--------|--------------------------|------------|--------|--------------------------|--------|-------------------|--------------------------------------------|--------|--------|-------------------|--------|
|                                                                                                                   |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |
| Balances      as of December 31, 2006                                                                                  |   |                       | −      |   |            | $      | −      |                    |   |   | 107,557           |   |   | $                        | 1,076      |   |                     | $      | 90,497            |                                       |   | $      | (87,861           | )      |   | $ | (128 | ) |   | $ | 3,584 |   |
| Stock      based employee compensation                                                                                 |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   | 130               |                                       |   |   |              |   |   |   |   |   |   |   | 130 |   |
| Fair      value of warrants issued  in connection with      short-term   debt                 |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |   546        |                                       |   |   |              |   |   |   |   |   |   |   |   546 |   |
| Fair      value of warrants issued in connection with long-term   debt                                  |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |   23         |                                       |   |   |              |   |   |   |   |   |   |   |   23 |   |
| Adjustment      to the fair value of beneficial conversion feature associated with the      convertible notes (Note 5) |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |     202 |                                       |   |   |              |   |   |   |   |   |   |   |     202 |   |
| Sale      of Common Stock at approximately $0.14 per share net of related costs of      $398                           |   |                       |         |   |            |   |         |                    |   |   |   21,500     |   |   |                     |   215 |   |                     |   |   2,387      |                                       |   |   |              |   |   |   |   |   |   |   |   2,602 |   |
| Comprehensive      loss:                                                                                               |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                          |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   | (3,399            | )      |   |   |   |   |   |   | (3,399 | ) |
| Foreign      currency translation adjustment                                                                           |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   | 93 |   |   |   | 93 |   |
| Total      comprehensive loss                                                                                          |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   |   |   |   |   | (3,306 | ) |
| Balance      as of September 30, 2007                                                                                  |   |                       | −      |   |            |   | −      |                    |   |   | 129,057           |   |   |                     | 1,291      |   |                     |   | 93,785            |                                       |   |   | (91,260           | )      |   |   | (35 | ) |   |   | 3,781 |   |
|  Stock      based employee compensation                                                                           |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   | 161               |                                       |   |   |              |   |   |   |   |   |   |   | 161 |   |
| Fair      value of warrants issued  in connection with Long-term      debt                                   |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   | 1,231             |                                       |   |   |              |   |   |   |   |   |   |   | 1,231 |   |
| Conversion      of Short-term notes into Preferred Shares, net of expenses of      $127                                |   |                       |   1,040 |   |            |   |   1,040 |                    |   |   |              |   |   |                     |       |   |                     |   | (127              | )                                          |   |   |              |   |   |   |   |   |   |   |   913 |   |
| Beneficial      Conversion Feature associated with the Preferred Shares                                                |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |   371        |                                       |   |   |              |   |   |   |   |   |   |   |   371 |   |
| Conversion      of preferred shares into Common Stock                                                                  |   |                       | (184         | )      |            |   | (184         | )                       |   |   | 1,317             |   |   |                     | 13         |   |                     |   | 171               |                                       |   |   |              |   |   |   |   |   |   |   | − |   |
| Comprehensive      loss:                                                                                               |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                          |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   | (3,309            | )      |   |   |   |   |   |   | (3,309 | ) |
|  Foreign      currency translation          adjustment                                        |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   | 48  |   |   |   | 48  |   |
|  Total      comprehensive loss                                                                                    |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   |              |                                       |   |   |              |   |   |   |   |   |   |   | (3,261 | ) |
| Accretion      of beneficial conversion feature on preferred stock                                                     |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   | (371         | )                                          |   |   |              |   |   |   |   |   |   |   | (371 | ) |
| Preferred      share dividends                                                                                         |   |                       |         |   |            |   |         |                    |   |   |              |   |   |                     |       |   |                     |   | (47          | )                                     |   |   |              |   |   |   |   |   |   |   | (47 | ) |
| Balance      as of December 31, 2008                                                                                   |   |                       | 856          |   |            | $      | 856          |                    |   |   | 130,374           |   |   | $                        | 1,304      |   |                     | $      | 95,174            |                                       |   | $      | (94,569           | )      |   | $ | 13 |   |   | $ | 2,778 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Cash      flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                                          |   | $      | (3,309 | )      |   | $      | (3,399 | ) |
| Adjustments to reconcile net loss      to net cash      used      for operating      activities:                                                                         |   |   |   |   |   |   |   |   |
| Depreciation and      amortization                                                                                                                                                                                              |   |   | 951    |   |   |   | 857 |   |
| Amortization of debt discount and      deferred financing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 848    |   |   |   | 969 |   |
| Loss on disposal of property and      equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | -      |   |   |   | 3 |   |
| Stock based employee      compensation                                                                                                                                                                                          |   |   | 161    |   |   |   | 130 |   |
| Minority      interest                                                                                                                                                                                                          |   |   | -      |   |   |   | (73 | ) |
| Changes in operating assets and      liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|    Accounts      receivable,      net                                                                                                                                                                            |   |   | (248   | )      |   |   | 35 |   |
|    Prepaid      expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 55     |   |   |   | (30 | ) |
|    Accounts      payable                                                                                                                                                                                         |   |   | (43    | )      |   |   | 63 |   |
|    Accrued      compensation                                                                                                                                                                                     |   |   | 5      |   |   |   | 128 |   |
|    Other accrued      liabilities                                                                                                                                                                                |   |   | (106   | )      |   |   | 29 |   |
|    Deferred      revenue                                                                                                                                                                                         |   |   | (88    | )      |   |   | 27 |   |
| Net cash used for      operating  activities                                                                                                                                                                          |   |   | (1,774 | )      |   |   | (1,261 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:Acquisition of property and      equipment                                                                                                                   |   |   | (27    | )      |   |   | (26 | ) |
| Capitalized software development      costs                                                                                                                                                            |   |   | (813   | )      |   |   | (788 | ) |
| Net cash used for investing      activities                                                                                                                                                                                     |   |   | (840   | )      |   |   | (814 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| Deferred financing      costs                                                                                                                                                                          |   |   | (425   | )      |   |   | - |   |
| Proceeds from issuance of      short-term      debt                                                                                                                                                    |   |   | 125    |   |   |   | - |   |
| Proceeds from the sale of common      stock, net of expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | -      |   |   |   | 2,602 |   |
| Proceeds from issuance of      long-term      debt                                                                                                                                                     |   |   | 3,000  |   |   |   | 1,120 |   |
| Principal payments on      debt                                                                                                                                                                        |   |   | (302   | )      |   |   | (1,265 | ) |
| Principal payments on capital      lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | -      |   |   |   | (5 | ) |
| Net cash provided by financing      activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 2,398  |   |   |   | 2,452 |   |
|  Effect      of exchange rate changes on      cash                                                                                                                  |   |   | 1      |   |   |   | 40 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | (215   | )      |   |   | 417 |   |
| Cash      and cash equivalents at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | 1,144  |   |   |   | 727 |   |
| Cash      and cash equivalents at end of      period                                                                                                                     |   | $      | 929    |   |   | $      | 1,144 |   |

----

|                                                                                                              |   | December      31, |    |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                              |   | 2008              |    |   | 2007 |   |
|  Interest paid                                                                                               |   | $                 | 226     |   |   | $ | 244 |   |
|  Schedule      of non-cash transactions:                                                                     |   |              |    |   |   |   |   |   |
| Short-term      notes and accrued interest exchanged for convertible preferred      stock                         |   | $                 | 1,040   |   |   | $ | – |   |
| Short      term notes and accrued interest exchanged for long term    notes                                       |   | $                 | 638     |   |   | $ | – |   |
| Accretion      of beneficial conversion feature on convertible preferred      shares                              |   | $                 | 371     |   |   | $ | – |   |
| Fair      value of warrants issued to the investors in connection with long –term      debt                 |   | $                 | – |   |   | $ | 23 |   |
| Fair      value of warrants issued to the investors in connection with long –term      debt                 |   | $                 | – |   |   | $ | 546 |   |
| Fair      value of the adjustment to the beneficial conversion feature associated      with the convertible notes |   | $                 | – |   |   | $ | 202 |   |

----

----

|                           |   | 2008   |   |   | 2007   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|
| Cash      in bank              |   | $      | 127    |   |   | $      | 89 |   |
| Money      market funds        |   |   | 802    |   |   |   | 1,055 |   |
|                           |   |   |   |   |   |   |   |   |
| Cash and cash      equivalents |   | $      | 929    |   |   | $      | 1,144 |   |

----

|                                                |   | 2008   |   |   | 2007   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Machinery      and equipment                        |   | $      | 1,202  |   |   | $      | 1,179 |   |
| Office      furniture and fixtures                  |   |   | 435    |   |   |   | 435 |   |
| Leasehold      improvements                         |   |   | 90     |   |   |   | 90 |   |
| Purchased      software                             |   |   | 323    |   |   |   | 319 |   |
|                                                |   |   |   |   |   |   |   |   |
|                                                |   |   | 2,050  |   |   |   | 2,023 |   |
| Less      accumulated depreciation and amortization |   |   | (2,002 | )      |   |   | (1,946 | ) |
|                                                |   |   |   |   |   |   |   |   |
|                                                |   | $      | 48     |   |   | $      | 77 |   |
|                                                |   |   |   |   |   |   |   |   |

| ·   | Patent      numbers 5544255, 5647017, 5818955 and 6064751 involve (a) the electronic      capture of a handwritten signature utilizing an electronic tablet device      on a standard computer system within an electronic document, (b) the      verification of the identity of the person providing the electronic      signature through comparison of stored signature measurements, and (c) a      system to determine whether an electronic document has been modified after      signature. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Patent      number 6091835 involves all of the foregoing and the recording of the      electronic execution of a document regardless of whether execution occurs      through a handwritten signature, voice pattern, fingerprint or other      identifiable means. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Patent      numbers 5933514, 6212295, 6381344, and 6487310 involve methods and      processes related to handwriting recognition developed by the Company over      the years.  Legal fees associated with these patents were      immaterial and expensed as the fees were  incurred. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |    |   Expiration |   | Estimated OriginalLife |   |   |  2008 |   |   |  2007 |   |
|------------------------------------|---------|------------------------|--------|------------------------|--------|--------|------------|--------|--------|------------|--------|
| Patent      (Various)              |    | Various                |   |                   | 5      |   |       | $      | 9      |       |   | $ | 9 |   |
| Patent      (Various)              |    | Various                |   |                   | 7      |   |       |   | 476    |       |   |   | 476 |   |
|                               | 5544255 |                   | 2013   |                   |   | 13     |       |   |   | 93         |   |   |   | 93 |   |
|                               | 5647017 |                   | 2014   |                   |   | 14     |       |   |   | 187        |   |   |   | 187 |   |
|                               | 5818955 |                   | 2015   |                   |   | 15     |       |   |   | 373        |   |   |   | 373 |   |
|                               | 6064751 |                   | 2017   |                   |   | 17     |       |   |   | 1,213      |   |   |   | 1,213 |   |
|                               | 6091835 |                   | 2017   |                   |   | 17     |       |   |   | 4,394      |   |   |   | 4,394 |   |
|                               |    |                   |   |                   |   |   |       |   |   |       |   |   |   |   |   |
|                               |    |                   |   |                   |   |   |       |   |   | 6,745      |   |   |   | 6,745 |   |
| Less      accumulated amortization |    |                   |   |                   |   |   |       |   | (3,596 | )          |   |   | (3,217 | ) |
|                               |    |                   |   |                   |   |   |       |   |   |       |   |   |   |   |   |
|                               |    |                   |   |                   |   |   |       |   | $      | 3,149      |   |   | $ | 3,528 |   |
|                               |    |                   |   |                   |   |   |       |   |   |       |   |   |   |   |   |

| ·   | The      estimated cash flow from products based upon each patent are expected to      exceed the value assigned to eachpatent; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | There      are no legal, regulatory or contractual provisions known to the Company      that limit the useful life of each patent to less than the assigned useful      life; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | No      additional material costs need to be incurred or modifications made in      order for the Company to continue to be able to realize the protection      afforded by the patents; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company, does not foresee any effects of obsolescence or significant      competitive pressure on its current or future products, anticipates      increasing demand for products utilizing the patented technology, and      believes that the current markets for its products based on the patented      technology will remain constant or will grow over the useful lives      assigned to the patents because of a legal, regulatory and business      environment encouraging the use of electronic  signatures. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                               |   | 2008   |   |   | 2007   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|
| Accrued      professional services |   | $      | 110    |   |   | $      | 134 |   |
| Rents                              |   |   | 47     |   |   |   | 43 |   |
| Interest                           |   |   | 75     |   |   |   | 66 |   |
| Other                              |   |   | 4      |   |   |   | 55 |   |
| Total                              |   | $      | 236    |   |   | $      | 298 |   |

----

|                                    |   | Payments      due by period |   |
|-----------------------------------------|--------|-----------------------------|--------|
| Contractual      obligations            |   | Total                       |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | Thereafter |   |
| Short-term      debt related party (1)  |   | $                           | 65     |   |   | $ | 65 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
| Long-term      debt related party (2)   |   |                        | 3,638  |   |   |   | – |   |   |   | 3,638 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Operating      lease commitments (3)    |   |                        | 792    |   |   |   | 272 |   |   |   | 280 |   |   |   | 240 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Total      contractual cash obligations |   | $                           | 4,495  |   |   | $ | 337 |   |   | $ | 3,918 |   |   | $ | 240 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |

| 1.   | Short-term      debt reported on the balance sheet is net of approximately $5 in discounts      representing the fair value of warrants issued in connection with the      Company’s debt financings. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Long-term      debt related party reported on the balance sheet is net of approximately      $873 in discounts representing the fair value of warrants issued to the      debt holders. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | The      operating lease commenced on November 1, 2002. The lease was renegotiated      in December 2005 and extended for an additional 60 months. The base rent      will increase approximately 3% per annum over the term of the lease, which      expires on October 31, 2011. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

|                         |   | Year      EndedDecember      31, 2008 | Year      EndedDecember      31, 2007 |
|------------------------------|--------|---------------------------------------|---------------------------------------|
| Risk      free interest rate |   | 2.64%      - 5.11%                    | 3.32%      - 5.11%                    |
| Expected      life (years)   |   | 3.58      – 6.88                | 3.21      – 3.77                |
| Expected      volatility     |   | 91.99%      - 99.98%                  | 93.68%      - 98.25%                  |
| Expected      dividends      |   | None                                  | None                                  |

----

|                                                                 |   | Year      EndedDecember      31, 2008 |   |   | Year      EndedDecember      31, 2007 |   |
|----------------------------------------------------------------------|--------|---------------------------------------|--------|--------|---------------------------------------|--------|
| Research      and development                                        |   | $                                     | 37     |   |                                  | $      | 18 |   |
| Sales      and marketing                                             |   |                                  | 33     |   |                                  |   | 66 |   |
| General      and administrative                                      |   |                                  | 75     |   |                                  |   | 13 |   |
| Director      options                                                |   |                                  | 16     |   |                                  |   | 33 |   |
| Stock-based      compensation expense included in operating expenses |   | $                                     | 161    |   |                                  | $      | 130 |   |

|                                                                                  |   | December      31, 2008 |    |   | December      31, 2007             |   |
|---------------------------------------------------------------------------------------|--------|------------------------|---------|--------|------------------------------------|--------|
|                                                                                  |   |  Shares           |    |   | WeightedAverageExercise      Price |   | Aggregate      Intrinsic Value |   | Weighted      Average Remaining Contractual Life |   |   |  Shares |   |   | WeightedAverageExercise      Price |   | Aggregate      Intrinsic Value |   | Weighted      Average Remaining Contractual Life |   |
|                                                                                  |   |                   |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding      at beginning of period                                               |   |                   | 6,036   |   |                               | $      | 0.59 |   |   |   |   |   |   |   | 5,893 |   |   | $ | 0.69 |   |   |   |   |   |
| Granted                                                                               |   |                   | 1,975   |   |                               | $      | 0.15 |   |   |   |   |   |   |   | 870 |   |   | $ | 0.21 |   |   |   |   |   |
| Exercised                                                                             |   |                   | − |   |                               | $      | 0.00 |   |   |   |   |   |   |   | − |   |   | $ | 000 |   |   |   |   |   |
| Forfeited                                                                             |   |                   | (403    | )      |                               | $      | 0.47 |   |   |   |   |   |   |   | (727 | ) |   | $ | 0.98 |   |   |   |   |   |
|                                                                                  |   |                   |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Outstanding      at period end                                                  |   |                   | 7,608   |   |                               | $      | 0.48 |   |   |   |   | 4.4 |   |   |   | 6,036 |   |   | $ | 0.59 |   |   |   |   | 4.7 |   |
|                                                                                  |   |                   |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options      vested and exercisable at period end                                     |   |                   | 6,043   |   |                               | $      | 0.56 |   |   |   |   | 3.9 |   |   |   | 5,364 |   |   | $ | 0.62 |   |   |   |   | 4.5 |   |
|                                                                                  |   |                   |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average grant-date fair value of options granted during the      period |   | $                      | 0.10    |   |                               |   |   |   |   |   |   |   |   |   | $ | 0.14 |   |   |   |   |   |   |   |   |   |   |

----

|                                            |                    |   | Options      Outstanding       |   |    | Options      Exercisable                                   |   |
|-------------------------------------------------|-------------------------|--------|--------------------------------|--------|---------|------------------------------------------------------------|--------|
|    Range      of Exercise Prices |                    |   |   OptionsOutstanding |   |    | Weighted      Average Remaining Contractual Life(in years) |   |   | Weighted      Average Exercise Price |   |   |   Number      Outstanding |   |   | Weighted      Average Exercise Price |   |
|  $                                         | 0.00      – $0.50 |   |                           |   | 4,179   |                                                       |   |   | 5.3 |   |   | $ | 0.24 |   |   |   | 2,614 |   |   | $ | 0.29 |   |
| $                                               | 0.51      – $1.00 |   |                           |   | 3,341   |                                                       |   |   | 3.3 |   |   | $ | 0.73 |   |   |   | 3,341 |   |   | $ | 0.73 |   |
| $                                               | 1.01      – $2.00 |   |                           |   | 73      |                                                       |   |   | 3.2 |   |   | $ | 1.66 |   |   |   | 73 |   |   | $ | 1.66 |   |
| $                                               | 2.01      – $2.99 |   |                           |   | − |                                                       |   |   | 0.0 |   |   | $ | 0.00 |   |   |   | − |   |   | $ | 0.00 |   |
| $                                               | 3.00      – $7.50 |   |                           |   | 15      |                                                       |   |   | 1.5 |   |   | $ | 3.56 |   |   |   | 15 |   |   | $ | 3.56 |   |
|                                            |                    |   |                           |   | 7,608   |                                                       |   |   |   |   |   |   |   |   |   |   | 6,043 |   |   |   |   |   |

|   Nonvested      Shares       |   |  Shares |   |   | Weighted      AverageGrant-DateFair      Value |   |
|-----------------------------------------|--------|--------------|--------|--------|------------------------------------------------|--------|
|  Nonvested      at January 1, 2007 |   |         | 672    |   |                                           | $      | 0.22 |   |
| Granted                                 |   |         | 1,975  |   |                                           | $      | 0.10 |   |
| Forfeited                               |   |         | (403   | )      |                                           | $      | 0.12 |   |
| Vested                                  |   |         | (679   | )      |                                           | $      | 0.16 |   |
| Nonvested                               |   |         | 1,565  |   |                                           | $      | 0.30 |   |

----

----

----

|                                  |   | 2008   |    |   | 2007   |   |
|---------------------------------------|--------|--------|---------|--------|--------|--------|
| Deferred      tax assets:             |   |   |    |   |   |   |
| Net      operating loss carryforwards |   | $      | 24,959  |   |   | $      | 25,572 |   |
| Credit      carryforwards             |   |   | 315     |   |   |   | 315 |   |
| Deferred      income                  |   |   | 117     |   |   |   | 172 |   |
| Other,      net                       |   |   | 170     |   |   |   | 317 |   |
|                                  |   |   |    |   |   |   |   |   |
| Total      deferred tax assets        |   |   | 25,561  |   |   |   | 26,376 |   |
|                                  |   |   |    |   |   |   |   |   |
| Valuation      allowance              |   |   | (25,561 | )      |   |   | (26,376 | ) |
|                                  |   |   |    |   |   |   |   |   |
| Net      deferred tax assets          |   | $      | -       |   |   | $      | - |   |

|                                                            |   | 2008   |    |   | 2007   |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Expected      federal income tax benefit                        |   | $      | (1,267  | )      |   | $      | (1,157 | ) |
| State      income tax benefit                                   |   |   | (330    | )      |   |   | (204 | ) |
| Expired      net operating loss                                 |   |   | 1,911   |   |   |   | 1,512 |   |
| Change      in valuation allowance and other                    |   |   | (314    | )      |   |   | (151 | ) |
|      Income      tax expense (benefit) |   | $      | – |   |   | $      | – |   |